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COUNTRY REPORT

Ghana

4th quarter 1998

The Economist Intelligence Unit15 Regent Street, London SW1Y 4LRUnited Kingdom

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Contents

3 Summary

4 Political structure

5 Economic structure

6 Outlook for 1999-2000

11 Review11 The political scene15 The economy and economic policy17 Mining and industry19 Energy21 Agriculture22 Business and finance23 Foreign trade, aid and payments

25 Quarterly indicators and trade data

List of tables10 Forecast summary13 Corruption perceptions index: selected countries, 199815 Inflation, 199818 Gold production, Jan-Jun23 Ghana’s mobile phone services, 199824 Timber exports25 Quarterly indicators of economic activity26 Foreign trade26 Direction of trade

List of figures11 Gross domestic product11 Real exchange rates24 Trade with the UK

Ghana 1

EIU Country Report 4th quarter 1998 © The Economist Intelligence Unit Limited 1998

November 5th 1998 Summary

4th quarter 1998

Outlook for 1999-2000: The NDC will have problems maintaining partyunity following the recent emergence of a new faction, the Reform Group.Vice-president Atta Mills must rally political allies if he is to secure the partyleadership in 2000. President Rawlings will focus his attention on regionalissues, while donor relations will continue to improve, despite increaseddomestic pressure to slow economic reforms. GDP growth is set to rebound to4.8% in 1999, once the energy crisis is resolved, with a further acceleration in2000. Inflationary pressures will remain strong in 1999, before weakeningslightly in 2000. The cedi will lose value against the dollar, halting its realappreciation of the past two years. Cocoa and gold output will rise, but onlymodest improvements in prices are forecast.

The political scene: The battle for the presidential succession is far from overas the Reform Group threatens to split the ruling NDC. The opposition NPP haselected John Kuffour as its candidate. Government relations with students andthe press remain tense. Relations with Nigeria are improving.

The economy and economic policy: Inflation has fallen, prompting a cutin interest rates. Economic policy management has come under renewedcriticism. The cedi has continued its real appreciation, which is underminingexport competitiveness. The tax burden on rural banks has been eased. Ghanashows improvement on the UN’s development index, but a cholera outbreak isreported in the north.

Mining and industry: The mining sector has continued to face low goldprices and higher electricity costs, but gold production has risen. Steel andaluminium firms have been hit hard by the energy crisis.

Energy: Although the energy crisis has eased considerably, industrial con-sumers are still suffering shortages. Electricity prices have been doubled. Aproposed regional gas pipeline project seems to be making progress, but offshoreoil results are disappointing. Ghana’s cities may face water shortages.

Agriculture: The main cocoa marketing season has begun and a task force isto examine productivity-enhancing measures. The World Bank is assessingGhana’s fishing development programme.

Business and finance: A $320m loan has been arranged for Cocobod. TheSecurities Regulation Commission has finally been inaugurated. The stock-market had a bearish third quarter.

Foreign trade, aid and payments: Togo was Ghana’s main export destina-tion in 1997. Timber export earnings are slightly up this year. New loans havebeen secured from Japan and China.

Editor: Piers HabenAll queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

Ghana 3


Political structure

Official name Republic of Ghana

Form of state Unitary republic

Legal system A new constitution, based on the US model, was approved by referendum in April 1992

National legislature Parliament; 200 members elected by universal suffrage every four years

National elections December 7th 1996 (presidential and legislative); next elections due in 2000

Head of state President, elected by universal suffrage for a maximum of two four-year terms;currently Jerry John Rawlings, serving a second term

National government Cabinet, partially appointed by the president in February-May 1997

Main political parties Progressive Alliance (PA), the ruling coalition, consisting of the National DemocraticCongress (NDC, the majority party) and the Every Ghanaian Living Everywhere(EGLE) party. Opposition parties include: the New Patriotic Party (NPP); the People’sNational Convention (PNC); the National Convention Party (NCP); the People’sConvention Party (PCP); United Ghana Movement (UGM)

President Jerry John RawlingsVice-president John Atta Mills

Key ministers Attorney general & justice Obed AsamoahCommunications Ekwow Spio-GarbrahDefence Mahama IddrisuEducation Christine Amoako-NuamahEmployment & social welfare Mohammed MumuniEnvironment, science and technology J E AffulFinance Richard Kwame PeprahFood & agriculture Kwabena AdjeiForeign affairs Victor GbehoHealth Samuel Nuamah-DonkorInterior Nii Okaidja AdamafioLands & forestry Cletus AvokaLocal government Kwamena AhwoiMines & energy Fred Ohene KenaParliamentary affairs Joseph Owusu-AcheampongRoads & transport Edward SaliaTourism Mike GizoTrade & industries John Frank AbuWorks & housing Issac Adjei-MensahYouth & sports Enoch Teye Mensah

Ministers of state without portfolio Daniel Ohene AgyekumMargaret Clarke-KwesieEbenezer Kobina FosuAlhaji Abdullai SalifuKwabena FosuMumuni Abundu SeiduKofi Awoonor

Central bank governor Kwabena Duffour

4 Ghana


Economic structure

Latest available figures

Economic indicators 1993 1994 1995 1996 1997a

GDP at market prices (C bn) 3,674 4,950 7,417 10,384 13,876

Real GDP growth (%) 4.8 3.6 4.5 5.2 4.1

Consumer price inflation (av; %) 25.0 24.9 74.3 34.0 27.9b

Population (m) 16.38 16.86 17.34 17.83 18.30

Exports fobc ($ m) 1,064 1,236 1,431 1,571 1,521

Imports fobc ($ m) 1,728 1,580 1,678 1,937 1,952

Current account ($ m) –558 –264 –144 –324 –383

Reserves excl gold ($ m) 409.7 583.9 697.5 828.7 500.0

Total external debt ($ m) 4,880 5,464 5,872 6,148 6,047

External debt-service ratio, paid (%) 20.7 22.9 21.4 24.5 27.4

Cocoa productiond (’000 tonnes) 255 290 404 340a 400

Gold production (m fine oz) 1.4 1.5 1.6 1.6 1.6

Exchange rate (av; C:$) 649.1 956.7 1,200 1,754 2,250b

October 30th 1998 C2,340:$1

Origins of gross domestic product 1996 % of total Components of gross domestic product 1996 % of total

Agriculture, forestry & fishing 40.6 Private consumption 74.0

Industry 14.2 Government consumption 11.0

Manufacturing 8.1 Gross domestic investment 17.0

Services 48.4 Exports of goods & services 26.0

GDP at factor cost 100.0e Imports of goods & services –28.0

GDP at market prices 100.0

Principal exports 1996 $ m Principal imports 1990 $ m

Gold 612 Capital goods 544

Cocoa beans & products 552 Intermediate goods 356

Timber 147 Fuel & energy 210

Consumer goods 124

Main destinations of exports 1997f % of total Main origins of imports 1997f % of total

Togo 13 UK 15

UK 12 Nigeria 14

Germany 10 US 10

US 9 Germany 6

France 7 Spain 5

a EIU estimates. b Actual. c Balance-of-payments basis. d Crop years beginning in October of calendar year. e Does not equal 100 at source dueto omission of import duties and bank service charges. f Based on partners’ trade returns; subject to a wide margin of error.

Ghana 5


Outlook for 1999-2000

The unity of the NDC willcome under pressure—

The issue of life after the departure of President Jerry John Rawlings will hangover the National Democratic Congress (NDC), the majority ruling party, untilthe next elections in 2000. As is so often the case, the imminent departure of acharismatic leader has revealed deep divisions. After 17 years in power,Mr Rawlings is set to retire in 2000, an event which he continues to insist willtake place on schedule. In an attempt to quash potential fissures within theparty, the president announced in May that he supported the vice-president,John Atta Mills, as the party’s next leader, and thus probably Ghana’s nextpresident. The move was also intended to end speculation that either he wouldengineer a constitutional change to allow him to stay on, or that his wife,Nana, who clearly has her own political ambitions, would stand in his place.However, the unilateral manner in which Mr Rawlings declared his support forMr Atta Mills has caused dissent among some elements within the NDC whowish to see greater democracy within the party. They have issued a challengeto the leadership to democratise the party structure—a move which is threaten-ing the unity of the NDC.

—as the succession battlemay not yet be over—

A few months ago it appeared almost certain that the top leadership post wouldbe smoothly passed over to Mr Atta Mills. However, the emergence of a“Reform Group”, calling for changes to the internal party procedures, hasbrought the succession issue into question once more. Demanding more activeconsultation of local party members in decisions, including that of the succes-sion to Mr Rawlings, the Reform Group has scheduled its own congress, priorto the NDC’s official party congress due in mid-December, to decide whetherto break away and form a new party. In an attempt to head off a formal split,talks to seek a compromise have reportedly begun. Unless a deal can be struckquickly, which appears far from certain, a final leadership decision is likely tobe delayed until the NDC’s party congress in 1999. The NDC’s constitutioncalls for the selection of the leadership in the same year as the election, whichoffers the party some rhetorical cover and allows at least another year for a newarrangement to be found. Whether that will temporarily satisfy the ReformGroup, and whether its adherents will be patient enough to wait another year,remains to be seen. Even if they do not break away before 2000, the divisionwithin the NDC will continue to loom large after the elections. If the ReformGroup does form a breakaway party, this would embarrass the NDC, but anynew party would run into severe resource constraints and, in the face of apolitical offensive by the ruling party, would probably not be able to mount aserious challenge to the NDC’s voter mobilisation machine.

—and a passive Mr AttaMills has work ahead of

him

While Mr Rawlings has put on a conciliatory public face, despite rumours of hisprivate fury at the party rift, little has been heard from the vice-president.Mr Atta Mills, who was formerly a law professor and head of the tax collectionagency, is known to be a quiet but effective technocrat, and has emerged not asa political heavyweight, but as a compromise candidate. Relatively new to thevicious arena of Ghanaian politics, his greatest political assets appear to be thesupport of Mr Rawlings and his close advisers, and his almost total lack ofpolitical enemies. However, expectations that he would move quickly to

6 Ghana


broaden his support base within the party have failed to materialise. The inter-nal challenge of the Reform Group may instead start second thoughts onthe part of some in the party hierarchy who only reluctantly accepted hisascension. Indeed, given some of the strongarm tactics used by several prom-inent NDC leaders in the 1980s, they are concerned that Mr Atta Mills may betoo weak, or perhaps too legalistic, to protect them from a barrage of lawsuitsand possible security threats after Mr Rawlings has retired. The most importantfactor will be the influence of Mr Rawlings and his coterie of advisers, notablyKofi Totobi Quakyi and Kojo Tsikata, the latter of whom remains a formidableforce despite his recent low profile. If uncertainty does begin to surroundMr Atta Mills’s leadership, other challengers within the party, such as thedefence minister, Mahama Iddrisu, may rise to challenge him. Indeed, if polit-ical in-fighting heats up it is even possible that Mr Atta Mills will elect to leavepolitics altogether.

Mr Kuffour will lead theNPP in 2000

Discord within the NDC may benefit the opposition parties, especially the NewPatriotic Party (NPP), which is in the strongest position to challenge it in thenext elections. The NPP is trying to ensure it mounts a strong campaign in2000 by choosing its presidential candidate well in advance. At the partyconference in October it selected John Agyekum Kuffour, a lawyer and econ-omist, to lead its election bid. Mr Kuffour headed the NPP’s unsuccessful elec-tion campaign in 1996, in which he failed to impress ordinary voters. Althoughhe will not be up against the charismatic Mr Rawlings in 2000, the NPP will stillfind it hard to convince voters, especially in rural areas, that they are more intouch with their concerns now than they have been in the past.

Mr Rawlings will focus onrebuilding regional

relationships

Despite the troubles at home, the president will continue to focus on promotinghimself as a regional and international statesman in 1999 and 2000. He haspursued this role since overseeing regional peacekeeping efforts in Liberia in theearly 1990s as chairman of the Economic Community of West African States(Ecowas) but is perhaps more vigorous in his pursuit now as retirement loomsand he sets his sights on a prominent international position. With Nigeria, nowunder the leadership of General Abdulsalami Abubakar, again courting inter-national favour, Ecowas is poised to reassert itself under Nigerian leadership. Itis perhaps in this context that Mr Rawlings will remain keen on strengtheningrelations with Ghana’s powerful neighbour and projecting himself and Ghanathrough Ecowas as important players in regional relations.

There are bright prospectsfor improved donor

relations—

Although the IMF resumed Ghana’s enhanced structural adjustment facility(ESAF) in March and the government formulated a revised economic strategy,the Policy Framework Paper, in close consultation with donors, it is likely to missmost of its performance targets for this year. In the face of the energy crisis,official projections for almost all macroeconomic indicators are increasinglyunrealistic. Nevertheless, the donors appear to recognise the political necessityof some fiscal loosening during political campaign seasons, and are showingsigns of flexibility in the light of circumstances which the government arguesare outside its control, such as the energy crisis. While some of Ghana’s currentproblems clearly stem from external pressures, such as low international goldprices, it is less clear that the energy crisis is a result of poor weather and not

Ghana 7


just bad government planning and neglect. Nevertheless, donors, and espe-cially the IMF, which is facing growing international criticism over its inflexi-bility in Asia, will not be looking to impose sanctions against one of its modelreformers in Africa, regardless of whether specific targets are missed, and hencerelations look set to remain firm. The government, for its part, does appear tobe slowly getting back on track with economic reforms. Value-added tax (VAT)will be introduced in December, electricity tariffs have finally been raised,further reforms in the cocoa sector are being seriously explored, and thegovernment has launched a new initiative to root out public-sector corruption.

—but political pressurewill build as the

elections near

As the elections draw closer, pressures will build to spend freely and reverse orslow reforms. The government made concessions to political expediency beforeboth the 1992 and 1996 elections, when fiscal discipline was abandoned.The doubling of electricity tariffs in September has already become a campaignissue, with the NPP calling for its immediate reversal. Students have also beenprotesting against budget cuts to universities, crowded conditions on campusesand the introduction of boarding fees—creating a high potential for con-frontations with the police and unrest. Public-sector unions are also agitating fora large pay rise, and while some cost-of-living adjustment will be necessary, theIMF will be pushing hard to limit any increase in the wage bill. Higher develop-ment spending will certainly occur, especially as the NDC will be seeking to rallyits supporters, the bulk of whom live in rural areas. Yet President Rawlings,facing retirement, is also aware of his legacy and will want to maintain hisreputation as a reformer, with his eye on a high-profile international positionafter 2000. Given these various pressures, the government will be looking topush the IMF as far as possible and may get some leeway, but a drastic reversalof either economic reforms or fiscal tightening seems out of the question asMr Rawlings will not want to risk another freeze on the country’s ESAF.

Growth is set to reboundin 1999—

Owing to a slowdown in output in the industrial and services sectors, as a resultof power shortages, the EIU’s estimate of real GDP growth in 1998 is just 1.2%,well below the government’s target of 5.6%. However, as capacity constraintsare lifted, with more power coming on stream, growth should rebound stronglyin 1999, to 4.8%. Higher government expenditure in the run-up to the 2000elections and the construction of a number of new power stations should alsohave a positive impact. Assuming that agricultural output remains firm andthat industry adapts quickly to higher power costs, real GDP growth shouldremain strong in 2000 at 5.3%.

—but inflationarypressures will remain—

According to the latest figures available, inflation had been brought down to ayear-on-year rate of just 18.6% in August, after having risen to over 23% in April.However, the EIU expects inflationary pressure to gather momentum in late1998, owing to higher food prices and the 100% increase in electricity tariffs.The introduction of VAT at a rate of 10% theoretically should simply replacehigher but less efficient sales taxes, but consumer confusion could allow tradersto use VAT as an excuse to push up prices, as happened during the abortedintroduction of VAT in 1995. As a result, we estimate that inflation will acceler-ate to about 27% by year-end, giving an average rate in 1998 of 22%. Infla-tionary pressure will continue throughout 1999 as government spending

8 Ghana


increases in the run-up to the elections and hikes in civil service salaries raiseconsumer demand. While the Bank of Ghana (BoG, the central bank) willcontinue to maintain a tight monetary policy, the EIU expects the cedi toweaken markedly, which will have an inflationary impact on the local prices ofimported goods. As a result, we forecast that inflation will remain relatively highin 1999, averaging around 24% throughout the year. As the pressure on fiscalexpenditure eases after the elections and the BoG tightens the reins, inflationshould ease in late 2000 to give an average rate for the year of about 15%.

—as the cedi cannotmaintain its current rate

The cedi has remained stable against the US dollar throughout 1998, but suchstability does not appear to be supported by either economic fundamentals orconfidence in the economy. High inflation differentials with the US demon-strate that a real appreciation of the cedi has occurred, whereas a real deprecia-tion would be expected in a year of slowing economic activity and a growingcurrent-account deficit. The real appreciation is damaging the competitivenessof Ghana’s non-traditional export sector. It appears that the exchange rate hasbeen kept artificially stable by “moral suasion” on commercial banks andexchange bureaux. With international reserve levels unimpressive and capitalinflows likely to remain modest, we expect the cedi to depreciate over the nextsix to 18 months. The longer the pressure on the currency builds, however,the greater the chance that the depreciation will be disruptive to economicactivity. Consequently, we expect the cedi to average C2,370:$1 in 1998, witha modest drop before the end of the year, but C3,444:$1 in 1999. Assumingthat the BoG stabilises the exchange rate in the latter half of 1999 and into2000, we forecast the cedi to decline in line with inflation differentials toaverage C4,035:$1 in 2000.

Cocoa output is set toremain strong

Cocoa production—which is estimated to remain roughly at 1997 levels thisyear with a crop of about 400,000 tonnes—is set to rise in 1999 and 2000. TheEIU’s latest World Commodity Forecasts has forecast a crop of 415,000 tonnes in1999, with production stimulated by the 25% rise in farmgate prices announcedby the government in June. Nevertheless, production volumes will remaindependent on weather conditions and disease, with the beans susceptible tomould if harvest rains are heavy and marketing procedures are slow. Moreover,uncertainties surrounding the liberalisation of the cocoa sector, in particular inmarketing, may further affect volumes. The EIU’s latest forecast, set in earlySeptember, expects cocoa price increases of 9% in 1999 and 7% in 2000, thoughthese rates may be revised downwards in the light of slowing global consumerdemand generally, particularly in cocoa’s growth markets of Asia and Russia. Onthese assumptions, we are now forecasting a modest rise in cocoa export earn-ings from an estimated $562m in 1998 to $590m in 1999 and—assuming nocrop disasters—$625m in 2000.

Gold production willincrease—

Ghana’s mining firms have shown a remarkable resilience to the power short-ages suffered this year, recording a 35% year-on-year rise in output in the firsthalf of 1998. Higher electricity costs in the future, from both higher tariffs andthe increased costs associated with private power deals, will eat into the earn-ings of some of the smaller mining firms. Several will be forced to close, butheavily capitalised firms, such as Ashanti Goldfields Company (AGC), will be

Ghana 9


able to adapt. Indeed, Ashanti appears to be stepping up its aggressive takeoverand expansion plans, which should boost Ghana’s overall gold output over theforecast period. Total gold production could top 1.9m ounces in 1998, up from1.6m oz in 1997, with 2m oz now a realistic goal for 1999 and 2000.

—but export earnings willbe flat

Unfortunately for Ghana, lower gold prices have largely negated the effect ofhigher production. International gold prices, which dropped by about 15% in1997, have fallen further this year. The EIU forecasts a modest recovery of 3.4%in average prices in 1999, to about $306/oz, and a rise of almost 8% in 2000 to$330/oz. However, prices received by AGC, which produces about two-thirds ofGhana’s gold, will probably fall as its aggressive hedging policy—which up tonow has resulted in prices far above market rates—is based on a schedule ofgradually falling prices. Therefore, we expect Ghana’s total gold earnings,which are estimated to have fallen from $563m in 1997 to $533m in 1998, toremain relatively flat at $540m in 1999 and $550m in 2000.

The current-accountdeficit is forecast to

narrow

We expect the trade deficit to widen in 1998 to $711m as a result of the energycrisis, which has raised demand for oil while reducing the capacity of the manu-facturing export sector. In 1999 the trade deficit is set to narrow to $622m as aresult of higher traditional exports, and some modest gains in non-traditionalexports owing to the cedi’s depreciation. The services balance is expected toremain relatively stable, so we expect an improvement in the current account,with the deficit narrowing to $551m in 1999, from $591m in 1998. Importspending, which will drop slightly in 1999 in line with low oil prices, is forecastto rise again in 2000 as the construction and utilities subsectors import moreparts and materials. Nevertheless, the current-account deficit is set to narrowslightly in 2000, helped by a small improvement in the invisibles balance.

Forecast summary

1997a 1998a 1999b 2000b

Real GDP growth (%) 4.1 1.2 4.8 5.3

Consumer price inflation (av; %) 27.9c 22.2 23.5 15.3

Merchandise exports fob ($ m) 1,521 1,415 1,467 1,559 of which: cocoa 464 562 590 625 gold 563 533 540 550

Merchandise imports fob ($ m) 1,952 2,126 2,089 2,227

Current-account balance ($ m) –383 –591 –551 –514

Average exchange rate (C:$) 2,250c 2,370 3,444 4,035

a EIU estimates. b EIU forecasts. c Actual.

10 Ghana


Review

The political scene

The succession battle isfar from over—

President Jerry John Rawlings had hoped that his endorsement in June of thevice-president, John Atta Mills, as his successor would end party in-fightingand allow the ruling National Democratic Congress (NDC) to focus its atten-tion on defeating the opposition parties in the next election, due in 2000.Instead, Mr Rawlings’s announcement has exacerbated intra-party tensions ascriticisms that the party is anti-democratic and corrupt appear to have gainedmomentum. An initially anonymous group of “cadres”, claiming to representthe party’s grassroots supporters, published an open letter in two newspapersin July denouncing the party’s leadership and castigating the president fornaming his successor without consulting party members (3rd quarter 1998,page 11). Under mounting pressure to appear less autocratic, Mr Rawlingsexplained in late August that it was only his “opinion” that Mr Atta Millsshould be the NDC presidential candidate in 2000, and not a “declaration” thathe would be. Although in public the president maintained this was a simpleclarification and claimed that he welcomed genuine criticism of party prac-tices, it did seem to represent a concession to the internal critics and, privately,Mr Rawlings was reported to be furious.

—as the Reform Groupshows its face

The anonymity of the cadres was ended in late September, when GoosieTanoh, one of the few radical ideologues who have remained in the NDC sinceits revolutionary days, appeared on a radio programme. He claimed to be oneof the leaders of the “Reform Group”, a new faction of the NDC seeking toreform the party and return it to its democratic roots. Mr Tanoh openly blastedNDC leaders in an unprecedented airing of internal party divisions. Describingthe party leadership as “corrupt” and “intolerant”, he threatened that theReform Group could break away from the party and put forward its own candi-date, presumably himself. Although a compromise is being sought through aseries of meetings between NDC party leaders and the Reform Group to prevent

60

70

80

90

100

110

120

130

1990 91 92 93 94 95 96 97 98 99 2000

Real exchange rates (c)1990=100

CFAfr:$ (d)CFAfr:$ (d)CFAfr:$ (d)CFAfr:$ (d)CFAfr:$ (d)CFAfr:$ (d)CFAfr:$ (d)CFAfr:$ (d)CFAfr:$ (d)CFAfr:$ (d)CFAfr:$ (d)CFAfr:$ (d)CFAfr:$ (d)CFAfr:$ (d)CFAfr:$ (d)CFAfr:$ (d)CFAfr:$ (d)CFAfr:$ (d)CFAfr:$ (d)

Cedi:$

CFAfr:$ (d)

Cedi:$Cedi:$

Naira:$Naira:$Naira:$

CFAfr:$ (d)

Cedi:$

CFAfr:$ (d)

Cedi:$Cedi:$

Naira:$Naira:$Naira:$

97(a) 98(a) 99(b) 2000(b)

CFAfr:$ (d)

Cedi:$

CFAfr:$ (d)

Cedi:$

CFAfr:$ (d)

Cedi:$

CFAfr:$ (d)

Cedi:$

CFAfr:$ (d)

Cedi:$

CFAfr:$ (d)

Cedi:$

CFAfr:$ (d)

Cedi:$

CFAfr:$ (d)

Cedi:$

CFAfr:$ (d)

Cedi:$

CFAfr:$ (d)

Cedi:$

Naira:$

97(a) 98(a) 99(b) 2000(b)97(a) 98(a) 99(b) 2000(b)97(a) 98(a) 99(b) 2000(b)

0

1

2

3

4

5

6

1996 97(a) 98(a) 99(b) 2000(b)

Ghana

Africa

Gross domestic product % real change, year on year

(a) EIU estimates. (b) EIU forecasts. (c) Nominal exchange ratesadjusted for changes in relative consumer prices. (d) Côte d'Ivoire.Sources: EIU; IMF, International Financial Statistics; World EconomicOutlook.

n/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/an/a

Ghana 11


a split, the latter has scheduled its own “congress” in November, several weeksbefore the NDC’s official party congress, to decide on its future course. This willgive a good indication of the level of support for the group. While the NDC isclearly embarrassed by this public row, it appears that the party may be movinginto a new phase of being better able to accept and cope with criticism as itopens up and prepares for the departure of the dominant Mr Rawlings.

The NPP elects Mr Kuffouras its presidential

candidate again

On October 24th John Agyekum Kuffour was elected by the opposition NewPatriotic Party (NPP) as its presidential candidate. Mr Kuffour, who was theNPP’s unsuccessful challenger to Mr Rawlings in 1996, beat six other NPP hope-fuls by polling 1,286 votes out of a total of some 2,000. The other candidatesincluded the NPP’s spokesman for legal and constitutional affairs, Nana Akufo-Addo, and the spokesman on economic affairs, Kofi Apraku. In his acceptancespeech, Mr Kuffour pledged to work with the defeated candidates to “penetratethe hamlets and villages in all the ten regions for a resounding victory inelection 2000". These words underline how crucial it is for the NPP to makeinroads into rural areas, where, as a somewhat middle-class party, it is felt to beout of touch. However, Mr Kuffour’s nomination is unlikely to help the NPP toimpress ordinary voters as he is seen neither as charismatic nor in touch.

In early September the NPP was stung by a defection of 47 local party members inthe Abesim district to the NDC. According to reports on an independent radiostation, a spokesman for the defectors claimed that their change of loyalty resultedfrom the visit of US President Bill Clinton in March, which convinced them that,contrary to NPP claims, Mr Rawlings had not turned Ghana into a pariah state.

A new party is launched,targeting youth—

On August 29th the United Ghana Movement (UGM), Ghana’s newest polit-ical party, held its first official party congress in Tamale. The congress adopteda constitution and endorsed candidates for top posts, including the partyleader, Charles Wereko-Brobby—a former NPP official and one-time studentunion leader in the UK. The party claims to be targeting the youth vote, butremains largely a vehicle for the personal ambitions of Mr Wereko-Brobby.Although he has not yet officially declared his candidacy, he will probably runfor president in 2000, but is not expected to have much impact on the result.

—as students protestagainst new fees

The introduction of boarding fees for university students led to high tensionson several campuses as the new academic year began. There had been extensiveprotests in June on the main University of Ghana campus at Legon, in subur-ban Accra, but no violence was reported, most likely owing to the heavy policepresence. In Kumasi, however, the University of Science and Technology wasbriefly closed in early October after about 150 students attacked staff residencesand anti-riot police were forced to intervene to restore order.

The government’srelations with the press

remain cool

Despite government efforts to improve relations with the privately ownedmedia (2nd quarter 1998, page 9), they have remained strained over the lastfew months. Following multiple libel suits filed against publishers and printersthis year (3rd quarter 1998, page 13), it has been reported that independentnewspapers may be facing a total of at least 120 libel suits. Some analysts,including several officials of the Bar Association, have suggested that thegovernment may be seeking indirectly to control the press through such

12 Ghana


lawsuits. The government has also used the implicit threat of a withdrawalof government advertising to deter printers from working with opposition-affiliated newspapers. Two newspaper editors, Harruna Attah of The Statesmanand Kweku Baako of The Guide, completed their 30-day prison sentences forpublishing a libellous cartoon. Their case had attracted attention in the mediaand become a focal point for complaints about the potential impact of libelsuits on press freedom.

A corruption index ranksGhana midway in Africa—

In its latest annual survey of perceptions of corruption, Transparency Inter-national, a Berlin-based non-governmental organisation, ranks Ghana 55thout of 85 countries, with a score of 3.3 out of 10 (10 being corruption-free).While this ranking puts Ghana firmly in the middle of the 15 Sub-SaharanAfrican countries included in the survey, it contrasts sharply with a reportreleased earlier this year by the London-based Control Risks Group, whichranked Ghana the sixth most corrupt country in the world. Given the subjec-tivity of such surveys, any such ranking should be treated with caution. How-ever, because the Transparency International index draws upon multipleexisting polls, rather than conducting its own, it does give the broadest meas-ure available of the perceptions of the business sector. Ghana’s ranking is abovecountries such as Thailand, Bulgaria and Venezuela, but well behind severalother African countries, including Botswana and Zimbabwe.

Corruption perceptions index: selected countries, 1998

Rank Country Scorea

1 Denmark 10.0

23 Botswana 6.1

32 South Africa 5.2

43 Zimbabwe 4.2

45 Malawi 4.1

52 Zambia 3.5

55 Ghana 3.3

59 Côte d’Ivoire 3.1

74 Kenya 2.5

81 Nigeria 1.9

85 Cameroon 0.5

a 10 = corruption free.

Source: Transparency International.

—but a new study pointsto corruption in health

and education

In October a study by a newly founded institute in Ghana, the Centre forDemocracy and Development (CDD), reported that the public perceived cor-ruption to be endemic in the provision of healthcare and education. A nationalsurvey conducted in September found that 56% of those seeking admission tothe public school system used “contacts” to gain a place, with nearly half ofthese paying some sort of bribe. Healthcare provision appeared on the wholeless corrupt, with only about one-third of applicants using “contacts” to helpsecure services. Although the study did found that many people found sucharrangements a normal part of life in Ghana, it concluded that a shortage ofresources, especially low public-sector salaries, had helped to create a climate inwhich corruption could flourish. This study may show an alarming rate of graft

Ghana 13


within the public sector, but the publication of the report, which was part ofthe National Integrity Workshop hosted by the Ghana Commission on HumanRights and Administrative Justice, also illustrates an increasing openness inGhana to discuss and tackle the problems of corruption.

Mr Rawlings concentrateson relations with Nigeria—

Relations with Ghana’s most important neighbour, Nigeria, had been strainedearlier in the year following allegations that Ghana had been used as a basefrom which an alleged coup plot was hatched. However, the death of GeneralSani Abacha in June, and the emergence of General Abdulsalami Abubakar, hascreated the possibility of greater co-operation. Recently, in an apparent bid toimprove relations, Mr Rawlings has been publicly defending Nigeria, calling onthe international community to understand the complexities of Nigeria’s prob-lems and give it time to resolve them. Mr Rawlings visited the new leader inAbuja in late June and General Abubakar paid a two-day state visit to Ghana inOctober. The two leaders reportedly discussed regional conflicts—especiallythose in Sierra Leone, Guinea-Bissau and Liberia—and pledged to push aheadwith the West African Gas pipeline (see Energy). Although Nigeria, whichdominates the political and economic climate in the region by its sheer size,has been focusing on its own internal reforms, it does appear that relationswith Ghana are now set to improve.

—and maintains his highinternational profile

Pursuing his active regional foreign policy, President Rawlings hosted the pres-idents of Burkina Faso in August and Equatorial Guinea in September, whenregional issues of water management and energy supplies were high on theagenda (see Energy). However, Mr Rawlings also travelled to Cuba and the USin September, in a trip that captured the two public faces of the president. Hemet the business communities in New York, Pittsburgh and Detroit to promoteinvestment opportunities in Ghana, but also went to Cuba and met its leader,Fidel Castro, after which he addressed the UN General Assembly, where hecastigated Western powers over social and economic inequities in the world.This ability to combine pragmatism with a fiercely ideological streak, makingfriends in Washington and Havana, helps explain the NDC’s reliance on, andfear of losing, Mr Rawlings.

Liberian refugees aregiven a deadline to

return home

According to the Ghana Refugee Board (GRB), all Liberian refugees in thecountry must return home by the end of this year. While acknowledging thatsome political refugees with “genuine fears” will be allowed to stay, GRB offi-cials claim that security in Liberia has improved and that it is now time forthem to return. With the outbreak of civil war in Liberia in 1989, an estimated1m Liberians fled to other West African countries. The UN estimates that15,000 Liberians remained in Ghana in 1997. Given that economic opportun-ities are much greater in Ghana and the situation in Liberia remains fragile,most refugees will probably try to stay despite the voluntary repatriation pro-gramme which began last year, under which free passage, food and othersupplies are provided. Although forcing refugees to leave may be popular withnationalist elements within Ghana, expulsion will remain a sensitive politicalissue as many people still remember the expulsions of Ghanaian workers fromNigeria in the 1980s and early 1990s and are proud of Ghana’s prominentpeacekeeping role in Liberia.

14 Ghana


The economy and economic policy

Inflation slows for thefourth successive month—

The Bank of Ghana (BoG, the central bank) has reported that inflation slowedin August for the fourth consecutive month to a year-on-year rate of 18.6%,down from 18.7% in July and 21.8% in June. This slowdown in price increasesfollows an acceleration in inflation in early 1998, to a peak of 23.1% in April.It reflects currency stability and lower prices of housing, utilities and staplecrops. However, the government’s year-end target of an inflation rate of 9.5%is unlikely to be met, as food prices traditionally rise in the third quarter, andelectricity tariffs were doubled in September.

Inflation, 1998(% change, year on year)

Jan Feb Mar Apr May Jun Jul Aug

Consumer prices 19.8 19.6 20.3 23.1 22.9 21.8 18.7 18.6Source: Bank of Ghana.

—prompting a looseningof monetary policy—

The BoG reduced its discount rate, which had remained at 45% for the past threeyears, to 42% on September 25th. The central bank governor, Kwabena Duffour,explained that the cut was made possible by the slowdown in inflation, fromover 70% in 1995 to under 19% in July, and the stability of the cedi. It is alsolikely that reductions in government domestic borrowing have eased liquiditypressures. It is in this context that Treasury-bill rates have similarly dropped,with the 91-day rate falling from about 43% in January to around 31% inSeptember. The BoG expects banks and other financial institutions to bringdown their lending rates as well, although this may be postponed if, as the EIUforecasts, inflationary pressures gather momentum in 1999. Mr Duffour addedthat these recent developments reflect a “fundamental improvement” in themacroeconomic environment.

—but economicmanagement is criticised

Despite these positive monetary trends, the government has come under re-newed criticism for its economic management. Joe Abbey, a former deputyfinance minister and currently executive director of the independent Centrefor Policy Analysis (CEPA), attributed Ghana’s loss of macroeconomic stabilityover the past few years to failures in both policymaking and policy implement-ation. In a public assessment of Ghana’s economic performance in the first halfof 1998, Dr Abbey concluded that it would not meet any of the major targetsagreed with the IMF as set out in the government’s recent Policy FrameworkPaper (3rd quarter 1998, pages 13-14). In another critical report, released in lateSeptember, the Institute of Statistical, Social and Economic Research (ISSER),an economic research institute at the University of Ghana, claimed that “theinability to meet targets in the budget has become an entrenched outcome ofeconomic management in Ghana”. The ISSER report did recognise that infla-tion had been slowly brought down, but maintained that it was still too highto permit accelerated growth. Similarly, it argued that interest rates were muchtoo high to allow expansion in local industries.

The cedi’s continuedappreciation is worrying—

The cedi has continued to show remarkable stability over the past quarter;there has been virtually no movement in the exchange rate this year. OnOctober 30th the cedi was trading at C2,340:$1, compared with C2,271:$1 in

Ghana 15


January. Ghana’s high rates of inflation relative to those in the US mean thatthe nominal stability of the exchange rate has caused the cedi to appreciateagainst the dollar by some 20% in real terms. However, the strength of the cediseems entirely unfounded. Overall confidence in the economy has declinedduring 1998 as the electricity crisis has reduced growth and widened thecurrent-account deficit, while there has been a deterioration in internationalsentiment about emerging-market currencies. Modest increases in privateinvestment inflows and the agreement with the IMF in March will have helpedto stabilise the exchange rate, but they do not warrant a real appreciation.Similarly, while the central bank has intervened directly in the past to supportthe cedi, it does not appear to have been active in the foreign-exchange mar-kets over the past few months. International reserves were reported to be just$494m in May, representing a mere 2.7 months of import cover and giving theBoG little room for manoeuvre. Instead, it appears that the government hasbeen using administrative efforts to control foreign exchange bureaux and thebanks—a strategy that is unsustainable in the medium term.

—and hurts exportcompetitiveness

This year’s appreciation of the cedi comes on top of the 10% rise registered in1997. Although the authorities may have specifically targeted a stable nominalexchange rate in order to ensure some level of macroeconomic stability, thereal economy is suffering as a result. The strong cedi has undoubtedly damagedthe competitiveness of Ghana’s manufacturing export sector, undermining thegovernment’s policy of export diversification.

Mr Rawlings asks forremittances through the

formal sector

Remittances from Ghanaians abroad are thought to average over $300m peryear, making up the bulk of Ghana’s large current transfer credits, estimated bythe EIU at $586m in 1998. Accurate data collection has, however, been compli-cated by the prevalent use of informal and non-bank institutions. The BoG haslaunched a campaign against unofficial financial houses involved in moneytransfers, and several have reportedly been closed down. Meanwhile, PresidentRawlings, during his trip to the US in September, thanked Ghanaians abroadfor their important contribution to the economy, but appealed to them totransfer funds using the formal banking system. Although Ghana’s bankingsector has undergone a successful restructuring and confidence has steadilygrown, many Ghanaians, especially those who have left to live overseas, stillremember the seizures of assets by the government in 1979 and 1982, includ-ing the freeze on all bank accounts containing over C50,000 ($18,200) in 1982,during widespread investigations of tax evasion.

Rural banks are boostedby a tax cut

The government appears to be taking an active interest in promoting ruralbanking, despite the central bank governor’s recent condemnation of ruralbanks for inadequate reporting (3rd quarter 1998, page 17). The governmenthas reduced the corporate tax rate for rural banks from 35% to just 8%, appar-ently in recognition of the role they play in the rural economy. The move waswelcomed by the Association of Rural Banks (ARB), which, with funding fromthe Danish International Development Agency (Danida), is setting up a com-munications network to link rural banks. This should improve efficiency byallowing more timely reporting. In addition, a feasibility study for the creationof an “apex body” to act as a banker to rural banks has been submitted to the

16 Ghana


ARB, the World Bank and the Bank of Ghana. No date was given for a decisionon the proposed body, which reportedly would facilitate cheque clearing, pro-vide deposit insurance, train personnel and source onshore and offshore fundsto improve capitalisation.

Ghana shows a markedimprovement in

development indicators—

According to the UN’s 1998 Human Development Report, Ghana has shown signif-icant progress in health and education standards in recent decades. Average lifeexpectancy, which stood at only 45 years in 1960, had risen to 55 years in 1991,and to 57 years by 1995. Similarly, adult literacy rose from just 31% in 1970 to65% in 1995, with a 12% rise in just the past decade. Most striking, however, isthe advance in real GDP per head on a purchasing power parity (PPP) basis;which increased from $970 in the mid-1980s to $2,039 by 1995, a 210% rise.Although PPP remains a controversial method of adjusting measures of wealth(the EIU estimates real per head GDP at about $350 in 1995 at current prices), itdoes show a trend towards greater purchasing power among Ghanaians, furtherindicated by the increasing emergence of a middle class and by the growingarray of consumer goods widely available.

—but cholera is reportedin the north

In September 120 cases of cholera were reported, including at least eightdeaths, in the Upper East region which borders Togo and Burkina Faso. Localhealth officials blamed the outbreak on unhygienic conditions; thousands ofpeople live in crowded accommodation without proper sewage facilities andare involved in illegal gold mining. Although this appears to be an isolatedincident, it highlights the lack of sanitation and healthcare in rural areas. Onaverage Ghana has only four doctors per 100,000 people, which remains one ofthe lowest rates in the world. In October several doctors at a teaching hospitalin Accra went on strike against poor working conditions and low pay, claimingto earn only about $160 per month, while working long hours.

Mining and industry

The mining sector faceslow gold prices and

higher electricity costs—

The mining sector in Ghana has been severely hit by low gold prices andincreased production costs, stemming mainly from electricity price rises. Thegold price, which had staged a modest comeback to about $312 per ounce inMay, has remained under $300/oz since then. On October 30th gold in Londonwas selling for $292.5/oz. Power supplies and costs also remain a problem, withelectricity rationing for industry continuing during the third quarter and elec-tricity tariffs being doubled in September (see Energy). As a result, several smallmines have shut down and workers have been laid off. According to the MineWorkers’ Union (MWU), at least 8,000 mineworkers have lost their jobs. InPrestea, in the Western region, however, over 1,000 workers who had beenfired when the South African mining company Barnex closed a mine earlierthis year have reportedly been using their severance pay to keep the mine inworking order. With the help of the MWU they have now registered a newcompany to take over its operations.

—but gold productioncontinues to rise strongly—

Results for the first half of 1998 show a significant rise in gold output, up 35%from the same period last year. This rise, in the face of the problems outlinedabove, was largely a result of an increase in the number of companies operating,

Ghana 17


from 13 to 16, and the ongoing efficiency drive by the major producers, espe-cially the Ashanti Goldfields Company (AGC).

Gold production, Jan-Jun

1997 1998 % change

Total production (oz) 718,640 971,985 35.3

Value ($ m) 260 325 25.0Source: Department of Mines.

—and Ashanti forges ahead Despite complaints from Ashanti’s chief executive, Sam Jonah, that electricityprice increases are hurting the mining sector, AGC has continued its aggressiveexpansion. In September a new deep shaft at the company’s main Obuasi minewas opened, at a cost of about $23m. The new shaft, which is the world’slargest of its kind, has a projected capacity to carry 1.35m tonnes of ore peryear, bringing Obuasi’s total capacity up to 3.5m tonnes. This development isthe latest phase of Obuasi’s rehabilitation, which began in 1986 and has re-turned it to its former status in the 1960s as one of the world’s most productivemines. Ashanti also continued to take over other mines across Africa with thepurchase of Samax Gold, a Toronto-listed company, for about $135m. Samaxhas small holdings in Ghana, Senegal and Congo (Brazzaville), but its mainassets are in Tanzania. The mine in Ghana is in the Geita district and adjoinsan existing Ashanti-owned mine, allowing the development of a huge complexwith annual production of about 400,000 oz. AGC has also acquired Samax’s50% share of the Golden Pride mine in Tanzania. Golden Pride, of which theother half is owned by Resolute of Australia, is expected to begin operations inNovember and eventually produce 150,000 oz per year. AGC also bought backmore than 5m shares in August, reflecting its renewed confidence and itsintentions to maintain share prices.

The Glencar projectprogresses

According to the African Mining Bulletin, construction at Glencar Mining’sWassa gold mine is on schedule and the company expects to begin operationsin January 1999. Operating costs at the mine are estimated at just $180/oz forthe life of the mine, which would make it one of the lowest-cost mines in theworld. The Dublin-based firm expects annual production to top 100,000 oz,with proven total reserves at about 1m oz, but with a total potential yield ofmore than double this amount. The development of the mine, which is 10%owned by the government, has been financed with a $47.5m loan arranged byStandard Bank in London, with $15m from the Commonwealth DevelopmentCorporation (CDC).

Steel and aluminiumsuffer

While AGC has weathered the electricity shortages, Ghana’s other main con-sumers of power have been hit extremely hard. The top electricity consumer,the Volta Aluminium Company (Valco), was running at only 20% capacity inOctober, with just one of its five pot lines operating. Valco has had to shedworkers, and its long-term future in Ghana remains uncertain. In September,three steel companies—Wahome Steel, Ferro Fabrik and Tema Steel—announced in a joint statement that they were making half their 1,500 workersredundant. They cited the higher electricity tariffs and cheaper steel importsfrom Russia and Ukraine as the main reasons behind the cutback. The three

18 Ghana


companies, which were already running at only about 50% of their total capac-ity of 140,000 tonnes/year, may now try to push the government to restrictimports of steel, a move that is likely to be given short shrift by the govern-ment, given its developing relations with the Bretton Woods institutions.

Energy

The energy crisis iseasing—

It appears that Ghana is starting to come out of the electricity crisis that hasstarved the entire country of power throughout this year. Electricity supply hasbeen steadily rising as several short-term emergency power suppliers havecome on stream and imports from Côte d’Ivoire have grown. Although themain Akosombo dam is still running at only about 30% of its 1,072-mw capac-ity, due to low water levels, four new independent power producers havereportedly been registered. According to local radio reports, Aggreko has beenproducing about 30 mw in Tema, one of the country’s industrial centres. A new50-mw turbine is expected to be added to the Aboadse thermal plant nearTakoradi by the end of this year, and there are hopes of increases in productionat plants run by Faro Atlantic (70 mw), Cummins (30 mw) and Global AeroDesign (192 mw). As of October, most residential customers were receivingnormal power, with only occasional cuts. Most industrial customers are report-edly getting about 12 hours per day, but scheduling remains unreliable. How-ever, major industrial consumers, including the steel and aluminiumproducers, are still being hit hard by shortages (see Mining and industry).Several of the mines have also been hit, but the country’s largest mining firm,Ashanti Goldfields Company (AGC), has signed a contract for a privateprovider, the US-based KMR, to build a 220-mw plant, with half of its outputguaranteed for AGC (3rd quarter 1998, page 21).

—as tariffs are increasedby 100%—

After several years of rapid expansion of the power grid and below-markettariffs, the pressure from this year’s power shortage has finally forced thegovernment to reform electricity pricing. In the past the government has re-sisted raising prices through fear of a political backlash, but in the face ofmounting public-sector debts, and the realisation that new investment in theenergy sector is vital to the economy, a price increase was inevitable. Whilethe Volta River Authority (VRA), which manages the power generation atAkosombo, had proposed a 54% rise, the Electricity Company of Ghana (ECG),the national distributor, had lobbied for a 136% hike. On September 1st tariffswere raised about 100% by the newly created Public Utilities RegulatoryCommission (PURC). The basic monthly rate for most residential consumerswas doubled to C4,000 ($1.72) and industrial customers are facing rises of asimilar scale.

—prompting cheers andcomplaints

The rise in electricity prices brought mixed reactions. Given that most of thecountry had experienced severe power cuts throughout the year, the public hadgenerally come to expect price rises as inevitable. Several analysts pointed tothe lack of any major new investment in electricity production since the 1960sas the root of the problem, and argued that making prices match marketconditions more closely was a positive and necessary step forward. Predictably,major energy consumers were unhappy. AGC chief executive Sam Jonah

Ghana 19


warned that price rises could lead to the closure of some mines, especially at atime of low international gold prices. Mr Jonah estimated that the increasescould add $20 to the cost of producing an ounce of gold. Instead, he proposedlinking tariff increases for mining firms to the price of gold, a suggestion thatwas dismissed by the government. Business groups criticised the governmentfor failing to consult the private sector over tariff increases, and three of thecountry’s major steel producers blamed the rises for worker retrenchments andreductions in earnings. Seizing upon the opportunity, the opposition NewPatriotic Party (NPP) called on the PURC to withdraw the new rates for twoyears so that negotiations could be held with all stakeholders.

A regional gas pipeline isreportedly moving ahead

According to local press reports, the proposed 600-km West African Gas (WAG)pipeline, to supply Nigerian natural gas to Ghana, Togo and Benin, is makingprogress, with construction planned to start in 1999. Pipeline Engineering, aGerman consultancy, has been given the $2.5m contract for a feasibility study,which is apparently partly completed. Six companies have helped to fund thestudy—Shell, Chevron and a gas company from each of the participating coun-tries. During a trip to Ghana in October, the Nigerian head of state, GeneralAbdulsalami Abubakar, claimed that Nigeria had given authorisation to releasefunds for the project. However, the project, which has been discussed since atleast 1995, has yet to secure enough customers to make it economically viable.Competing gas producers in Côte d’Ivoire are hurrying to secure customersbefore WAG starts to be built, while uncertainties over the cost of Nigerianflared gas and the progress of several other power deals in Ghana have delayeddecision-making (3rd quarter 1998, page 21). Despite optimistic statements byofficials from all countries involved, differences among the participants persist,and the eventual implementation of the project remains far from assured.

Ghana and Burkina Fasostrike a deal over water

and energy

Tensions between Ghana and Burkina Faso appear to have waned followingmeetings between their presidents in August. Burkina Faso had been planningto build a dam on upstream tributaries of the Volta River, which Ghanaclaimed would impede the downstream flow of water, affecting the Akosombohydroelectric station, the country’s main power source. However, the two lead-ers agreed to co-operate on water management in the Volta River basin and toallow landlocked Burkina Faso to use Ghanaian ports. Although the meetingsappeared to have been successful, no final word on the proposed dam wasreported. There remains personal friction between the two, as the Burkinabèpresident, Blaise Compaoré, came to power in a 1987 coup, during which thethen president, Thomas Sankara, a close friend of Mr Rawlings, was killed.

Offshore drilling provesdisappointing

Ghana has been hoping to cash in on the flurry of oil drilling off western andsouth-western Africa. Huge new offshore finds in Angola and EquatorialGuinea, plus the proven reserves in Nigeria and Gabon, had generated opti-mism that offshore oil could be found in Ghanaian territory. Although thenatural gasfields at Tano are being developed for two barge-mounted powerplants, oil exploration in Ghana has seen “very patchy results” according toAfrica Energy & Mining. However, the Houston-based Nuevo Energy has beenactively drilling in its 6,880-sq km East Cape Three Points concession, which itacquired in March 1997 (with a 25% share owned by Yukong of South Korea).

20 Ghana


Its first well, drilled in April, failed to yield a commercially viable flow and hasbeen abandoned. Undaunted, Nuevo Energy plans to continue seismic surveysin the block, and also in another concession, the 10,900-sq-km Accra-Keta,which it acquired in October 1997. Hunt Petroleum has also reportedly aban-doned its first well in its West Cape Three Points concession.

Water supply shortagesmay be on the horizon

It is increasingly likely that Ghana will face water supply shortages in the nextfew years, especially in the Accra-Tema metropolitan area. At least one suburbof Accra, Adenta, has already been facing water deficits, but officials at theGhana Water and Sewerage Corporation have claimed that the problem mayspread, as Ghana’s urban population grows faster than the infrastructure toserve it. It also appears that poor co-ordination between estate developers andutility providers has allowed some sprawling estates to be built without ade-quate facilities in place. In addition, the sector has suffered from fundingshortfalls, which have allowed a deterioration in maintenance of the water andsewage systems. This year’s low rainfall will have worsened the situation. How-ever, during a visit to Ghana in September, the British secretary of state forinternational development, Clare Short, announced a £30m ($51m) grant to-wards the rehabilitation of urban water delivery systems.

Agriculture

The cocoa marketingseason has begun—

October marked the beginning of the main cocoa crop’s marketing season,which runs until May. Farmers are urging the state-owned Ghana Cocoa Board(Cocobod) to begin harvesting their crops as soon as possible as storage facili-ties are limited and delays, combined with heavy rains, can lead to deteriora-tion in bean quality. Cocoa beans are extremely vulnerable to disease, and oncepicked, to moisture and heat, making efficient marketing and distributionessential. Cocobod has estimated that the 1998/99 main crop will yield350,000-360,000 tonnes, about the same as the previous year.

In mid-October officials from 12 major cocoa producers, including Ghana, metin Yaoundé, Cameroon, to formulate a united approach to boost cocoa prices,but no firm action to limit production or to manage stock levels is expected.

—and Cocobod is underreview

In late September the finance minister, Richard Kwame Peprah, inaugurated atask force to plan for further reform of the cocoa sector. While some progresshas been made—including the liberalisation of internal marketing in 1992 anda reduction in Cocobod staff from over 100,000 to about 10,500—the govern-ment is keen to improve productivity. The task force will therefore examineissues of quality regulation, extension services, financing and pricing policy. Itremains to be seen if the task force will address the question of the liberalis-ation of external marketing—long a sticking-point with donors. In Ghana’smost recent Policy Framework Paper, written in consultation with IMF andWorld Bank staff, the government has claimed that liberalisation would beassessed once internal market reforms are completed. Recently, farmers havebeen airing complaints about private cocoa buyers—who purchase about 30%of the crop, while Cocobod buys the remaining 70%—and the issue will remainhighly politicised. Ghana will be closely watching deregulation efforts in

Ghana 21


neighbouring Côte d’Ivoire, where external marketing is expected to be liberal-ised for coffee in December 1998 and for cocoa in October 1999.

A fisheries initiative isunder assessment

A team of World Bank officials visited Ghana in mid-October to assess progressin the fishing industry. The Bank’s soft-loan window, the InternationalDevelopment Association (IDA), has provided $9m for technical and capacity-building programmes over the past few years aimed at reversing the decline ofthe fishing industry and maintaining fish stocks. The funding is part of a largergovernment-led sectoral capacity-building initiative begun in 1996. Ghana’sfishing industry remains very small-scale, although there are some modestfish exports and processing, mainly from tuna-processing at the Pioneer FoodCannery in Tema, owned by the US-based Heinz Corporation.

Business and finance

A Cocobod loan worth$320m is arranged

The annual pre-trade loan to Cocobod has been co-arranged by StandardChartered and Ghana International Bank, with the requested $320m over-subscribed. While international banks have recently shied away from emergingmarkets because of turmoil in the global financial system, the ease with whichCocobod was able to secure the loan—the largest ever trade finance deal for asoft commodity in Africa—is a testament to its good standing with creditors. Infact, the spread on the loan, which many had predicted would be 50-75 basispoints over Libor, was just 37.5 basis points—remarkably tight, given thecurrent global conditions. Analysts have pointed out that Cocobod has anexcellent payment track record and the structured financing of the loan, whichlinks payments to commodity exports, is a generally more secure type of loan.Cocobod has arranged this facility each year since 1993, including last yearwhen $275m was borrowed, also at 37.5 basis points over Libor. This year’sloan, which is used by Cocobod to finance crop purchases for export, hasinvolved at least nine prominent European banks, including Barclays, INGBarings and Crédit Lyonnais.

The Securities RegulationCommission begins

at last—

On September 11th the vice-president, John Atta Mills, swore in the eightmembers of the long-awaited Securities Regulation Commission (SRC). Theorganisation will oversee the stock exchange and the activities of brokers andadvisers, as well as ensuring that securities laws are consistently applied. Thelegislation was passed in 1989 but no staff were employed until now, despitethe existence of an SNC office with a prominent sign and the fact that the stockexchange has been trading since 1990. In the interim period, all regulatoryactivities were the responsibility of the central bank governor. Although thestock exchange has not recorded a major case of fraud in its eight years ofoperation, the presence of the SRC, chaired by Kofi Dei-Anang and includingprominent members from the financial and legal sectors, may boost investorconfidence and will help to ensure that Ghana’s financial markets develop inaccordance with international standards.

—but the stock exchangehas a disappointing third

quarter

The Ghana Stock Exchange (GSE), which had been having one of its best everyears, has seen a steady decline in share prices since early June. The GSE’sall-share index shot up from about 500 points in the beginning of 1998 to an

22 Ghana


all-time high of 1,201 points on May 6th. Since June, however, the index hasdropped by over 30% to close at 784 points on October 30th. This still representsa 56% rise this year, while most other emerging markets have lost ground. Thethird-quarter slump largely stemmed from low international prices for tobaccoand oil and poor banking-sector results. Mobil Ghana, Pioneer Tobacco, SocialSecurity Bank and Ghana Commercial Bank have all suffered falls in their shareprices. AGC, which dominates the market and currently accounts for about 60%of market capitalisation, has also seen declining share prices, but these haveshown some buoyancy after gold prices staged a modest recovery in Septemberand October. Most striking, however, is the increasing spread between buy andsell orders, which is the result of the GSE’s extremely low liquidity levels. As ofmid-October, the number of shares with sell orders outnumbered demand by aratio of 22:1. While sellers are maintaining their price demands at present, theexcess of sell orders suggests that prices are likely to fall further towards the endof the year.

Competition intensifies incellular phones

The agreement in August between Hong Kong-based Hutchison and Celltel,one of Ghana’s three mobile phone services, should help to boost the latter’sprospects. Hutchison has reportedly taken an 80% share of Celltel, with 20%still in the hands of a Ghanaian business group led by Prince Kofi Kludjeson,ending the company’s lengthy search for a foreign strategic partner. Accordingto Pyramid Research’s Telecoms & Wireless Africa/Middle East (TWAME), theagreement will ease the company’s capital constraints and allow Celltel toexpand rapidly. New cellular operator licences have also been awarded toTelkom Malaysia, which bought a major stake in the state-owned GhanaTelecom in 1997, and the US-based consortium ACG-Telesystems. While thesenew developments should help to boost competition in Ghana’s cellularphone market, TWAME has expressed doubts about whether Ghana’s marketsize can support five carriers, suggesting that expansion may be followed by aperiod of consolidation.

Ghana’s mobile phone services, 1998

Company Subscribers

Millicom Ghana 20,000

Scancom 6,000

Celltel 5,000

Telkom Malaysia 0a

ACG-Telesystems 0a

a Service expected to begin in 1999.

Source: Pyramid Research, Telecoms & Wireless Africa/Middle East.

Foreign trade, aid and payments

Togo overtakes UK asprime export destination

Togo has overtaken the UK as Ghana’s biggest export destination, but the UKremains Ghana’s main source of imports. According to the latest data availablefrom the IMF’s Direction of Trade Statistics, total exports to Togo in 1997 reached$204m, just above the $202m to the UK. This was largely because of a 25% fallin exports to the UK relative to 1996, while exports to Togo were up by more

Ghana 23


than 10% over the same period. In 1997 Ghana’s three main sources of importsremained the UK ($498m), Nigeria ($473m) and the US ($346m).

Timber export earningsare rising—

Ghana’s Forest Products Inspection Bureau (FPIB) has reported that exportearnings from wood and wood products totalled $110.2m in January-August.This represented a 3.8% rise from $106.2m in the same period of 1997. Severalother African timber exporters have been hit this year by lower demand in Asia,but Ghana appears to have been largely unscathed because nearly all its timberexports go to the US or Europe.

—as Ghana aims to boostvalue added

While total earnings rose, timber export volumes were slightly down this year.This is likely to owe something to the government’s policy of encouraginghigher value-added exports. The Ministry of Lands and Forestry, which hasbeen significantly reformed over the past few years, and has worked to improvethe relationship between timber companies and local communities, has set atarget of 40% of lumber output to be processed locally. Although the ministry’soverall policy may be working, the 40% target is probably unrealistic in theshort term as some of Ghana’s potential customers, such as Saudi Arabia, haveindicated that, in order to encourage their own furniture industries, they areinterested only in raw timber. The government, which is also concerned aboutover-logging, particularly while the country’s timber-processing capacity is stilllimited, has set a maximum cut of 1m cubic metres per year. Ghana exportedabout 780,000 cu metres in the peak year of 1994 and has yet to come close tothe government’s limit, imposed in 1996.

Timber exports1993 1994 1995 1996 1997a

Value ($ m) 147.4 165.4 190.6 146.8 172.0

Volume (’000 cu metres) 727.8 780.0 590.0 364.7 442.0

Unit price (av; $/cu metres) 202.5 212.0 323.0 402.6 389.1

a Provisional.

Source: Bank of Ghana.

New loans from Japan andChina

In October it was announced that Japan is to provide Ghana with $90m inloans. The bulk of the funds, $80m, will be used to finance the rehabilitation ofthe Achimota-Anyinam section of the Accra-Kumasi highway. About $7m willgo to a medical research institute, with the balance used for an irrigationproject. The 30-year credits are on highly concessional terms, with a 1.8%interest rate and a ten-year grace period. In the same month, China announcedthree loans, including $18m to finance an undisclosed joint-venture project tobe administered by China’s Eximbank, $9m for a cocoa-processing plant and$6m for gold mining. According to the OECD’s Geographical Distribution ofFinancial Flows to Aid Recipients, Japan was Ghana’s largest bilateral donor in1996, providing $110m, nearly 17% of its official development assistance.

0

100

200

300

400

500

600

1993 94 95 96 97

ExportsImports

Trade with the UK$ m

Source: IMF, Direction of Trade Statistics.

24 Ghana


Quarterly indicators and trade data

Quarterly indicators of economic activity

1996 1997 1998

1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr

Agriculture Qtrly totals

Cocoa: exports ’000 tonnes 92.1 82.8 124.3 50.1 82.1 60.3 74.1 42.1 n/a n/a

Prices Monthly av

Consumer prices, Accra: 1990=100 426.8 468.9 488.8 510.5 556.5 605.9 627.4 633.4 n/a n/a

change year on year % 67.3 54.1 39.4 33.4 30.4 29.2 28.4 24.1 n/a n/a

Cocoa, New York &

London US cents/lb 61.4 68.3 67.6 66.8 65.4 73.1 77.0 78.3 76.1 79.0a

Money End-Qtr

M1, seasonally adj: C bn 858.40 1,026.25 1,318.64 1,102.19 1,097.69 1,372.72 1,696.32 1,605.14 1,519.06 1,713.90b

change year on year % 34.0 34.9 49.8 31.5 27.9 33.8 28.6 45.6 38.4 n/a

Foreign trade Qtrly totals

Exports fobc $ m 498.4 387.4 421.3 383.9 426.9 388.3 433.2 379.5 n/a n/a

cocoa beans “ 124.3 120.5 181.4 58.9 128.9 90.0 58.6 75.4 45.0d n/a

Imports cifc ” 810.1 747.2 760.4 900.2 839.2 855.0 822.1 839.4 n/a n/a

Exchange holdings End-Qtr

Monetary authorities:

golde $ m 80 80 79 78 72 71 67 65f n/a n/a

foreign exchange “ 683 648 605 802 583 509 438 454f 470 469b

Exchange rate

Market rate C:$ 1,587.3 1,666.7 1,724.1 1,754.4 1,892.7 2,023.1 2,216.3 2,272.7 2,325.6 2,325.6

Note. Annual figures of most of the series shown above will be found in the Country Profile.a Average for July-August, 77.0. b End-May. c DOTS estimates; figures are subject to revision. d January only. e End-quarter holdings at quarter’saverage of London daily price less 25%. f End-November.

Sources: ICCO, Quarterly Bulletin of Cocoa Statistics; IMF, International Financial Statistics; Direction of Trade Statistics, quarterly.

Ghana 25


Foreign tradea

($ ’000; monthly averages)

UK USb Germany Jan-Jul Jan-Jul Jan-Dec Jan-Dec Jan-Dec Jan-Dec

1997 1998 1995 1996 1995 1996

Exports to Ghana fobFood, drink & tobacco 1,299 1,218 3,109 5,256 422 275 of which: cereals & preparations 284 331 2,877 4,942 107 115Textile fibres 312 440 448 629 205 255Petroleum & products 140 128 638 1,067 274 312Chemicals 4,719 4,014 1,799 2,770 1,785 1,475Paper & manufactures 635 404 123 161 378 306Textile yarn, fabrics & mnfrs 377 410 166 277 61 131Non-metallic mineral mnfrs 438 304 140 221 97 100Iron & steel 970 806 87 131 411 375Metal manufactures 2,568 1,585 175 219 598 402Machinery incl electric 14,593 11,353 4,008 10,062 4,407 4,526Transport equipment 3,960 2,694 726 1,002 3,283 3,124Total incl others 38,383 30,145 13,891 24,528 13,900 12,926

Imports from Ghana cifCocoa beans 7,886 16,996 4,592 2,613 3,602 5,831Cocoa butter 1,128 892 0 0 3,433 1,922Wood 1,564 1,322 324 593 4,518 2,243Industrial diamonds 0 0 365 414 25 20Metalliferous ores & scrap 743 861 37 81 342 227Petroleum & products 0 0 0 248 371 0Non-metallic mineral mnfrs 6 6 9,987 8,882 4 8Aluminium & alloys 1,447 1,280 30 0 2,911 2,302Total incl others 18,662 27,852 16,897 14,888 17,285 14,154

a Figures from partners’ trade accounts. b US exports to Ghana averaged $32.9m and $19.2m per month in the period January-August 1997and 1998. US imports from Ghana averaged $13.9m and $11.1m per month in the period January-August 1997 and 1998.

Sources: UK HM Customs & Excise, Business Monitor, MM20; UN, External Trade Statistics, series D; US Department of Commerce News, FT900.

Direction of tradea

($ ’000; monthly averages)

Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Exports fob 1994 1995 1996 1997 Imports cif 1994 1995 1996 1997

Togo 10,583 13,083 15,417 16,958 UK 26,833 34,667 43,150 41,467

UK 16,083 19,583 22,375 16,800 Nigeria 28,833 32,333 35,533 39,442

Germany 18,250 16,000 12,867 13,283 US 11,417 14,417 27,067 28,808

US 15,583 15,333 13,550 12,075 Germany 9,500 16,083 14,225 16,450

France 7,167 10,417 10,550 9,650 Spain 1,417 4,833 5,758 14,767

Thailand 6,250 4,917 6,733 7,275 Côte d’Ivoire 5,417 8,417 11,308 12,442

Total incl others 122,833 133,500 140,767 135,650 Total incl others 171,500 213,667 268,142 279,633

a DOTS estimates.

Sources : IMF, Direction of Trade Statistics, yearly, quarterly.

26 Ghana


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